Prior to last night’s Republican debate in Boulder, Colorado, I challenged John Kasich and Jeb Bush to have the courage of their “convictions” and to call out the other candidates for their constant dependency on bullshit and fantasy. When the debate began, it seemed as though Kasich, at least, had read my advice because he came out guns blazing, talking about how the party was on the verge of nominating someone who is manifestly incapable of doing the job. And his argument was well-presented and reality-based.
KASICH: To talk [as Ben Carson does] about we’re just gonna have a 10 percent tithe and that’s how we’re gonna fund the government? And we’re going to just fix everything with waste, fraud, and abuse? Or that we’re just going to be great? Or we’re going to ship 10 million Americans—or 10 million people out of this country, leaving their children here in this country and dividing families?
Folks, we’ve got to wake up. We cannot elect somebody that doesn’t know how to do the job. You have got to pick somebody who has experience, somebody that has the know-how, the discipline.
Of course, Trump immediately responded with a sharp reminder that Kasich worked for Lehman Brothers at the time that that firm’s collapse nearly brought us a second Great Depression. It’s doubtful that Kasich got the better of the exchange, but I do think that Kasich was speaking for a lot of people and I guess that his message probably resonated with much of the Establishment. In any case, someone needed to say it.
But, there’s a bigger problem than the one that Kasich outlines. And that problem is that even Kasich is out of his fucking mind and/or completely willing to spew the rankest bullshit and the most irredeemable fantasy.
In the following excerpt, Kasich is talking about the deal that was just struck in Congress to avoid defaulting on our debts or shutting down the government. He begins sensibly, talking about how the deal adds to our debt and that he had been part of the team that balanced the federal budget in the 1990’s. But he finishes with a real clunker.
KASICH: I want to go back to what we were talking about earlier, this budget deal in Washington.
This is the same old stuff since I left.
You spend the money today and then you hope you’re going to save money tomorrow.
I don’t know if people understand, but I spent a lifetime with my colleagues getting us to a federal balanced budget. We actually did it. And I have a road map and a plan right now to get us to balance.
Reforming entitlements, cutting taxes. You see, because if you really want to get to a balanced budget, you need to reduce your expenses and you need to grow your economy. So what I will tell you about our incentives — our incentives are tight, and at the end of the day we make sure that we gain more from the creation of jobs than what we lose.
And you know what? Ohio, one of the best growing places in the country — I not only did it in Washington, I did it in Ohio, and I’ll go back to Washington, and there will be no more silly deals…
HARWOOD: Thank you, Governor.
KASICH: … If I become President because we’ll have a Constitutional Amendment to require a federally balanced budget so they will do their job.
HARWOOD: Thank you, Governor. Thank you.
I’ve said this many times before, but a constitutional amendment to compel Congress to pass a balanced budget is the stupidest goddamned idea in existence. I’m not going to go into great detail to explain why, but I’ll ask you to consider just two things. First, when the private economy contracts the best and pretty much only thing the federal government can do to slow or reverse a recession is to make up a lot of the difference by massively increasing spending. This “stimulus” spending can be combined with efforts to increase the availability and decrease the cost of money. In other words, you issue a lot of federal contracts and grants, you print money (issue new federal debt), and you lower interest rates to encourage economic risk-taking.
Second, since our country can print its own money, we have a fiat currency, which means that the value of U.S. Dollars isn’t tied to the value of some commodity or precious metal. As a result, we are able to use our federal debt in the form of U.S. Treasury bonds to maintain and facilitate the global economic system. The whole global economy would go haywire if the U.S. stopped issuing Treasury bonds because it didn’t owe anybody any money.
You don’t have to fully understand how the issuance of bonds fuels economic activity to grasp that the global system is premised on the U.S. loaning money to people in perpetuity. We can certainly lower our debt by running surpluses for a period of time, but it simply isn’t desirable for us to have no debt at all.
So, a balanced budget amendment would take away all of Congress’s tools for combatting massive cyclical job loss while also impacting the Treasury Department and Federal Reserve’s ability to meaningfully act. Routine recessions could easily turn into global recessions, and for no good reason. And I say “no good reason” because it simply isn’t part of the design of the global economy that the U.S. will stop issuing debt and begin investing surplus money in some portfolio of stocks and mutual funds.
This is not to say that it’s desirable to run massive deficits, the financing of which will chew up a huge percentage of the budget. Paying interest on debt chips away at the money that is available for more productive purposes. But there’s a big difference between keeping your deficit spending low and passing a constitutional amendment that dictates that the government cannot spend more than it takes in. That would make sense in a country that can’t print its own money or one that doesn’t issue the primary global currency.
I can’t really think of a more destructive idea than a balanced budget amendment. If we had had one in 2008-9, we never could have pulled out of the Great Recession.
So, while Kasich certainly sounds reasonable when compared to his colleagues, his willingness to pander on this issue is at least as bad as the idiotic, unworkable tax plans of Rubio and Trump and Jeb that will never, ever, become law for the simple reason that they would explode the very deficit they claim to care about.
Bush and Cheney got away with telling their base that deficits don’t matter, but just ask John Boehner and Eric Cantor how that worked out in the end. Sadly, there is no one running for the Republican nomination who is willing to tell the truth about how little deficits matter or to propose tax plans premised on the idea that they do.
“reforming entitlements, cutting taxes…”
Hoo boy, is there a way to rank utter bullshit? Is the self-retardation of supposedly intelligent men like Carson and Trump worse than the regurgitated “conservative” economic slop of Kasich and Jeb:( ? I suppose so, since Trump and Carson appear almost sadistic, not to say Hitlerian. Carson is even more of a scary clown than Der Trumper, and that’s saying something.
Yes, Kasich & Ko. balanced the budget—after the Dem prez and congress raised taxes to allow it to be done. And after actually cutting the goddam black hole of our bloated beyond comprehension military which has returned to Vietnam level days, and which cannot possibly now be cut what with the endless “wars” we require ourselves to participate in.
So here we go on another campaign where all Repubs (Kasich especially) promise to cut entitlements, while saying that the Dems are the REAL danger to social security and medicare and have done the actual cut, cut, cutting. This with a Repub congress.
Without tax increases on our plutocrats and the absurd offshore profits of the multinationals, you can forget about the revenues remotely covering the demanded expenses. In reality, taxes are at historic lows across all income levels, but let’s not get reality into this, heaven forbid!
I don’t particularly like the ever-increasing debt ceiling either, to tell you the truth, but I sure as hell don’t want our budget insanity (which was largely wrought by “conservative” tax policy) to be “solved” by expense-cutting Repubs—no sane person should.
I agree that we can’t just keep running up the debt indefinitely, but there is one question here that Republicans never address: How much debt can we actually afford? $18 trillion is a gigantic amount of money, no doubt, but that doesn’t necessarily mean it’s too big. It has to be measured against the scale of the US economy, which is also gigantic. Intuition isn’t particularly helpful here, and that’s really all there is to conservative complaints about the debt: It’s a lot, so that’s bad.
Obama has achieved significant cuts to the Defense Department budget in recent years, due to the drawdowns in the wars he inherited and the Federal budget sequester, among other things. The Defense budget is on a path to match the lowest amount as a percentage of national GDP since before World War II. The previous low, as you infer here, was reached during the Clinton Administration.
David Graeber: Britain is heading for another 2008 crash; here’s why
Not just true of Britain.
The accountant fallacy is to look just at your own books and ignore the books of your counterparties. For an individual business, those counterparties are employees, customers, vendors, governments, and the civil society of the local community. The federal government is a large, but not the largest counterparty that private corporations face, but it has the power of the law, which can be bent by buying legislators. And the law can affect the books of other counterparties and, most importantly, competitors is unequal ways. Fiscal discussions in the US, by reducing the model to a wallet, ignore counterparties — which is why business propagandists frame the arguments that way.
Greed is deranging; that is why we can’t have sanity; Midas is not sane in any way, shape, or form. And the ideology of the Republican Party is the ideology of Midas. A generation ago our cynical description of it was the Golden Rule — he who has the gold, rules. Kasich cannot depart from that frame; there hundreds of shock jocks and TV pundits and bought-out newspaper columnists ready to enforce the ideology on anyone who shows signs of sanity. And the Republican candidates fundamentally in their bones are political cowards and poseurs to pursue their ambitions.
Kasich is the poster child for the utter emptiness of politics in the Republican Party, enforced by the emptiness in the media that provides the moderators for these debates. It is a verbal form of WWE.
The whole discourse is trash-talking. Friday afternoon middle-school pep-rally trash-talking.
American amnesia is the goal. “Deficits don’t matter.” Denial that Cheney ever said that. And the priceless pearl: “He kept us safe.”
These are messaging tactics in seeking absolute power — President, Congress, Courts. The dream of the permanent Republican majority continues, and billions of dollars are being spent to convince the public that that is inevitable and what they themselves desire. And that history was other than what the primary sources, artifacts, and centuries of scholarship have worked out as somewhat settled.
Don’t blame the puppets for moving their mouths when the strings are pulled. The idea that Kasich could ever be a profile of courage is just gratuitous fluffery of the sort that JFK put in Profiles of Courage about Lucius Quintus Cincinnatus Lamar in order to deflect Southern critics.
Yes, indeed. It only makes sense in the context of the economically illiterate who think that a national government is just a big blown up worker’s household and the FED is a giant piggy bank that should be stuffed with metal coins.
That is not to say that a budget might not be close to balance over the course of several decades. As you point out, the budget should be counter-cyclical, but Congress is always pressing the pedal to the metal in good times and bad. The budget really should be overbalanced during booms to take some air out of overheated financial markets. The last time we saw that was the late ’90s. Wild Bush spending helped bring about the financial collapse. Heavy deficit spending is needed now but won’t be some time in the future, assuming TPP leaves the economy with a future other than multi-billionaire feudal lords ruling over a starving Third World peasantry.
We do have to include 99+% of Congress in the class of the “economically illiterate.”
They can’t even grasp the huge differences between federal and state accounting.
Other ignorant slogan repetitions from the last night:
“Audit the Fed” — it’s already audited and the information is publicly available.
On Social Security — an update of GWB’s “there’s nothing in the trust fund but a bunch of paper IOUs” — Christie screamed that “they (DC) lied to you and they stole it all.” Guess Crispy has yet to absorb the difference between stealing and borrowing.
Not that the “lenders” or borrowers have been responsible responsible as they should be (or what they expect of students who take out student loans).
There wouldn’t be a problem with the borrowing if Congress wasn’t reluctant to pay it back, i.e. the claim that SS should always be in surplus or balance or benefits should be cut. Usually from Republicans but not always.
There wouldn’t be a problem with the borrowing if Congress wasn’t reluctant to pay it back,…
The is a relatively recent phenomenon. Began with Newt and the Newtlets.
As you mentioned in another comment, the reason for the borrowing is also of importance. Clinton’s great one-year, tiny budget surplus wasn’t good national economics at all. It was achieved by continuing to underfund infrastructure and other important investments while at the same time they cut capital gains tax rates.
Yes, counter-cyclical surplus, like counter-cyclical deficits need to be big enough to be meaningful.
I think a fine example is what didn’t happen in the ’70s. What did happen is that the FED choked the life out of the economy by raising interest rates which totally clobbered the ag sector, the durable goods sector and the construction sector. If instead the government had run a surplus by taxing oil imports, I believe those industries wouldn’t have collapsed, we would be in far better shape in our carbon footprint and perhaps most importantly, Ronald Reagan would not have been elected President.
Cutting capital gain tax rates made it more difficult to to achieve the balancing of the Federal budget.
The Federal budget had a surplus for four straight years, and was nearly balanced for a fifth year.
http://www.factcheck.org/2008/02/the-budget-and-deficit-under-clinton/
¨The Clinton years showed the effects of a large tax increase that Clinton pushed through in his first year, and that Republicans incorrectly claim is the “largest tax increase in history.” It fell almost exclusively on upper-income taxpayers.¨
Clinton supported the 1997 capital gains tax reduction. While the 1993 income tax increase mostly affected upper-income earners, as all freaking income tax increase do because they have more money, they got almost all the benefits of the capital gains tax cut.
The “deficit” includes a bit a smoke and mirrors. The National Debt doesn’t. $4.4 trillion when Clinton took office, and $5.8 trillion when he left office. The only year that we can say there wasn’t a true deficit was 2000 b/c the debt increase was negligible. (Let’s not also overlook the fact that the SS trust fund balance was a mere $300 billion when Clinton took office and $1.2 trillion when he left. That was an additional $900 billion piggy bank that was an easy and low cost loan bank. A loan that Republicans and a non-trivial number of Democrats don’t want to pay back when the payments become due.)
OTOH — using simplistic measures like the deficit and national debt fails to incorporate more meaningful measures. Where the money for the deficits comes from and the reasons for spending more money than collected in tax receipts. Stiglitz’ “The Roaring Nineties” soberly details why all the hype about how good Clinton was for the economy is flat out wrong.
Much of the money from the surpluses or, using your claim, near or complete budget balancings, came from our sharp reductions in Defense spending during the Clinton Administration, cuts Bill was heavily attacked on politically but managed to get Congress to pass nonetheless.
In constant dollars, the lowest “defense” spending figure during Clinton’s tenure was the same as it was in 1983 and it had been dropping since the break up of the USSR. However, we didn’t get anywhere near the peace bonus that we should have with the end of the decades long Cold War.
Please — give your Clinton apologia a rest.
Even this graph, which differs wildly from GDP graphs which do not link Defense spending to boosted inflation rates, shows that Clinton cut Defense spending. Bill was attacked for these cuts, yet got a Congress most frequenltly under Republican control to cut Defense anyway.
These are facts. Your opnions of these facts and the person sharing them are not evidentiary.
Clinton and Obama raised taxes on the highest income earners and cut Defense spending. Reagan and W. Bush cut taxes on the highest income earners substantially and sharply increased Defense spending. The one recent President who defied these trends, H.W. Bush, lost so much political support on the right that he was unable to gain re-election.
This is in addition to a raft of other legislative and executive accomplishments by these Presidents which reflected the preferences of their Parties and Movements. One of many examples- H.W. Bush appointed Clarence Thomas, and Clinton appointed Ruth Bader Ginsburg.
Onama has given tens of millions of Americans health insurance and helped see through same-sex marriage rights. That´s pretty radical change.
The Parties are not the same.
“We do have to include 99+% of Congress in the class of the “economically illiterate.”
I’m always amazed at the ignorance of those we elect. Weren’t they from middle or upper income families that sent them to college? How could they be ignorant of basic science, economics, and mathematics? I used to think it was a put on for the Rubes (“I’m just a good old boy”), but LARGE numbers of them seem to have no qualification other than family connections and/or basic confidence man cunning.
the most ignorant are for the most part Koch puppets, bought by Koch bros for their pliability, usually with some flaw by which they can be blackmailed, from what I’ve seen over the past 6 yrs
Which brings to mind Denny Hastert. Did someone know his secret and pull his strings? IIRC his ascendancy to the Speakership was a bit of a surprise.
In their time, the Newtlets were as ignorant and only slightly less crazed then their successors. That was before the Kochs and other wealthy like-minded folks got in on buy US governments. So, I’m not inclined to lay all of the blame on KochCo.
You can make a good argument that the deficit/surplus should consider future demographics.
Not sure what you mean by wild Bush overspending. The Bush deficit was not very big (never over 3.2% GDP). It had nothing to do with the financial collapse.
Plenty of Bush (and Clinton) policies DID create the collapse of course.
https://research.stlouisfed.org/fred2/series/FYFSGDA188S
Does that deficit include the off the books spending on the Iraq war?
Yes.
No it didn’t; at least not in the first few years. (How often were CRs used by the Bush Admin because they can Congress couldn’t come together on a sane budget?)
These numbers are total expenditures, whether by CR or not.
Technically the 2009 budget was on GWB’s watch. That he punted, still puts it on his record. 2009 deficit as a percentage of GDP 9.8%.
Add up the reported actual deficits for the years beginning 10/1/01 through 9/30/09. It’s $3.5 trillion. Yet somehow the National Debt increase by $6.1 trillion. This can be likened to a charge card — if new purchases and annual interest charges on the outstanding balance total $1,000/per year (and assume no payments required), in eight years the balance would be $8,000 more, and not $14,000.
Perhaps all of the $2.6 difference between the total of the deficits and national debt is a function of booking the surplus collections for dedicated programs as revenues without booking the corresponding accrued expense. (The biggie Social Sec totaled $1.2 trillion during the period.) But it would be nice if someone checked the numbers to confirm that there was no off-budget spending that contributed to the National Debt and not the reported deficit numbers.
Administrations have some ability to play games in reporting deficit numbers. The one number that they can’t hide or massage for easier public consumption is the National Debt.
When GWB took over from Clinton (10/1/01), the the debt was $5.8 trillion. When it was handed off to Obama, it was $11.9 trillion. Roughly doubled during a period of low inflation. (Makes Carter’s four year debt increase of only 43% during a period of extremely high inflation look phenomenal.)
Yes, people like to equate the federal government to a household and therefore we need to balance the budget or bad things may happen. That may be true of you and me and your state and local government but it has about a zero chance for us as long as we have a freely floating fiat currency. And we need not ever worry about paying it back or how large it gets. It is likely we will always need a deficit to balance out things like savings and net imports. What we need to watch is inflation which becomes a risk at full capacity or a shortfall in real resources. Climate anyone?
And we need not ever worry about paying it back or how large it gets.
Have to disagree that we need not worry about “how large it gets.” And we should be mindful that payback time can easily coincide with the worst possible time to do so.
There are some “magic numbers” or ratios in all this but we don’t know all the variables that must be included to figure out those magic numbers. So, we use sloppy measures such as debt to GDP even as some countries manage with a higher ratio than others will a lower ratio.
It is shocking how many people just don’t understand that a certain part of U.S. Debt is structural and serves essential purposes in the world economy. I have been asking for a couple years now WHERE the sweet spot is, it is clearly much higher than zero and somewhere lower than $18 trillion, but nobody will tell me what percentage of US and World GDP has to be offset by U.S. Treasury instruments to fulfill liquidity, commodity settlement and flight to safety functions.
The United States should increase deficit spending to the point of full employment, near-zero private debt, and manageable inflation. In other words, it shouldn’t pay any attention to the debt-to-GDP ratio, because modern OECD governments are a combination of immortal (i.e. they can make payments over an infinite timeframe with little worry of repayment), resurrective (i.e. even if a government disbands, it’s considered accepted practice for a newly incorporated government to take on old debt), and has an unlimited ability to repay thanks to monetary sovereignty. With the very tragic exception of the EU, but there’s a structurally (though not politically) easy fix for that.
The only metric a country should be paying attention to when determining whether to deficit spend is inflation. But inflation and debt-to-GDP ratio has a weak correlation due to the above factors, if it even exists. See, oh, the US, the EU, and above all else Japan.
“near-zero private debt” There is a difference between consumption debt and investment debt. Borrowing to start a business, construct a dwelling, purchase durable goods, is different from borrowing to buy baseball tickets, booze, restaurants or plain conspicuous consumption.
Investment debt is ideally internally recursive — you went into debt to buy that house/get that degree/expand that business, but then it goes back to zero as your home increases in value/you get a better job/you earn more money. Just in time for your next business.
Obviously, a lot of things can go wrong once the investment is made — you’ll notice that there’s not a lot of difference, personally or economically speaking, between someone who sunk fifty thousand dollars into a car and electronics they can’t recover and someone who spent the same amount of money to lease an office that got destroyed by a non-insured act of God. But as long as the government gives people ample opportunity to recover from private debt (ideally without creating a moral hazard) it can and should go back down.
Private debt should be viewed as our second line of defense against economic malfeasance, not some kind of independently existing moral judgment that has no bearing on greater society. There will always be some jokers who just refuse to be helped and will continually waste any opportunity to get out of the hole, but these people are a super-minority. Most people spend and save fairly responsibly — within the limits of their knowledge and circumstances, of course.
Unless the federal government is experiencing inflation well above that of the 70s or the country is experience the mother of all trade surpluses, it should never run a surplus either. Surpluses are perfectly correlated with recessions for a reason.
Why? All post-WW2 OECD economy continually grow over the medium-term, if not the short term. After all, a toddler can count the post-WW2 years in which the economy had negative GDP; recessions are usually measured by the economy not growing enough.
That established, it’s basic economics that if an economy grows, the money supply must also grow to cover the new transactions. Either that, or the currency must deflate. Of course, people know that currencies have a difficult time deflating due to price stickiness, so the almost-inevitable result is economic contraction. Perdition can be delayed by running a trade surplus or an increase in private debt — the latter of which is what happened during the Bill Clinton and Stephen Harper administrations but is unsustainable for more than a couple of years.
In that light, paying back the national debt is a foolhardy move that shouldn’t be done at all. The only way to do that without continual recessions or depressions is to have deflation (which happens over a timeframe of decades, not years), trade surpluses (which a country has minimal control over), or increases in private debt (which is unsustainable).
Here’s a final factoid for you: in monetarily sovereign economies, the size of the national debt has almost no relationship to the interest rate we’re paying on it. Indeed, if you overlay the two charts the correlation in the US, especially since the 70s, is damn near inverted — unsurprising since one of the first things that people do in economic contractions is reduce interest rates, followed distantly by an increase in government spending.
Very good points, but to me, it is better to soak up excess liquidity and fight inflation by overbalancing the budget than by raising interest rates to the stratosphere breaking businesses and placing the burden of the fight on the backs of the lower income strata of the economy.
That reminds me. I got a notice from Chase bank the other day that they are raising my credit card interest rate from 18.99% to 24.99% They, of course, borrow from the Fed at ZERO %. Luckily I haven’t carried a balance since I was last unemployed twelve years ago, but why do so many Democrats kiss Jamie Dimon’s feet? (Not to mention other parts of his anatomy)
Overbalancing the budget does not fight inflation. Full employment does not cause increases in interest rates; tight money causes increases in interest rates. Tight money is when the money supply is smaller than that required to support real economic activity (actual trade in goods and services). The really high burden on the economy right now comes from the over-high interest rates, supposedly because of borrower risk, but really because the financial institutions can get away with it. Consider what those interest rates do to the economy and the ability of borrowers to pay them off when they are compounded over seven years; that is the tragedy of the Obama economic policy.
What do any politicians kiss any financial barons’s appendages? The dominance of high-cost media politics. Why do politicians cozy up to the Koch brothers; in several states, they were king-makers.
Now, they are borrowing from the Fed effectively a negative real interest rates. The Fed is giving away money and still can’t get the private sector to invest heavily in jobs. Does that not seem like a rigged system?
And if you can’t do it with monetary policy, the only alternative is fiscal policy (deficits). But to do it successfully with deficits in the longer term, those expenditures must lower costs to the economy. To pay back for the deficits, the government must capture through targeted taxes a portion of the productivity gains generated by the deficit spending. The high marginal rates post-WWII effectively did that. But they were repealed and flattened so that the impact would mostly fall on consumers (the middle class) not investors. Retrofitting the US rail system as a high-speed freight and passenger system and shifting traffic away from interstates would permit repair of interstates and all bridges. The appropriate tax increase would be an anti-financial-bubble tax that would put incentives on longer-term productivity. That tax is a straight-forward financial transaction tax of a fractional percent of every booked financial transaction in security and real estate markets. Similar state or local taxes of real estate transactions would prevent the large-scale sprawlification and abandonment of property in exchange for supporting schools, street improvement (fixing the potholes), parks, and increasing local government employment. Of course, those jurisdictions in which corruption is endemic will have to come to terms with those issues.
Another helpful tax is a corporate inequality tax that deals with the institutional promotion of inequality under the illusion of incentives. The straight-forward way of doing this is establishing the corporate tax rate as the multiple that the highest compensation package in the corporation is of the minimum wage and taxing corporate net income at that rate. It is the corporate policy that will set the tax rate, either through the compensation structure or through lobbying for the size of the minimum wage. Their boards are free to incur 300% tax rates if they really want to compensate Old Charlie 300 times the minimum wage.
Another tax is an estate tax on amounts of estates over $10 million. And to make it work economically, the tax must pull in at least 90% of the amount over $10 million. Of course flash estate sales of property could potentially lower the amount of the estate below $10 million. But the idea that Donald Trump “learning to work” by being given a million dollar loan that he had to pay back to Daddy is laughable. So is the whole success of the Bush family after Prescott’s dad.
Hereditary wealth corrupts free-market (captialist) economies and democratic polities. Of course, not society has ever been without hereditary wealth. Not even the state capitalist societies that portrayed themselves as “socialists” nor the mixed economies that portray themselves as “democratic socialist” or “social democrats” and certainly not the US with its aristocratic founding.
Can’t find fault with that.
However these people believe that the purpose of taxation is to sop up excess money and that money should be created to fund full employment, the excess sopped up by taxation. I’m sorry but I seem to have lost the link to that particular article.
Regarding excess CEO compensation, my proposal is a law that forbids any employee of a publicly traded corporation from being paid more than POTUS and private business salaries in excess be considered distributions of profit.
Correction that link isn’t the right one either although it was a link to the blog, the original diary was from two professors of economics at the University of Kansas City. Maybe it was here http://neweconomicperspectives.org/2015/03/the-debt-crisis-according-to-bruce-bartlett-household-ana
logy-inflation-savings-and-taxes.html.
Don’t like this at all:
Restoring a steeply progressive income tax schedule and defining all income as income would accomplish the same objective. A majority could probably agree on some nominal amount as the marker to define “excess” and the salary of the POTUS is as good as any other measure. Set the tax rate for income >$400,000 and <$801,000 at 60%, next $400,000 at 70%, next at 80%, next at 90% (have to leave them a bit to cover state and local taxes). And no deductions for income over $400,000.
Non profit’s executive compensation over $400,000 would would skip the intermediate tax rates and go directly to the top rate.
Wrt to privately held companies, there a many good reasons why we don’t want interfere with standard accounting procedures by defining undistributed, retained earnings as taxable owner’s compensation. Plus there are easier ways to identify operations that aren’t distributing earnings for no purpose other than tax deferral and avoidance.
” defining undistributed, retained earnings as taxable owner’s compensation” No, I was speaking distributed earnings. i.e. Owner pays himself a salary of $1,000,000, that is really $600,000 salary plus a distribution of $400,000 profit, but I’m not wedded to the idea. I just thought it would be easier legally to legislate accounting rules than legislate the salary of sole proprietorships or partnerships. I bow to your accounting knowledge. Besides, when the rubber hits the road there may be companies that can claim they are not in interstate commerce, hence can’t be regulated by the federal government. Tax laws and accounting standards OTOH also apply to companies not in interstate commerce by the {X} amendment that authorized direct taxation.
The public has a distaste for taking more than 50% of a salary. I felt the hard limit was equivalent to a 100% marginal task and easier to justify to the public. Who has greater responsibility? Who manages more employees or administers a bigger budget? Granted the budget is micromanaged by the Board of Directors (Congress). I feel that it’s easier to convince the public that CEO’s shouldn’t make more than POTUS than convince them that it’s OK to take 90% of money already paid and hence de facto “earned”.
YMMV
Ah, but if for individuals all income is fungible, doesn’t matter if it’s wages, distributed earnings, etc. Much simpler and doesn’t get into messy definitions and authority of the USG.
btw — Sub-Chapter S corps (and partnerships and sole proprietorships), the business net income is personally taxable to the shareholders regardless if it’s distributed or not. Avoids that complaint about “double-taxation,” but in my simplified formulation, C-corps would in most instances be preferable to Sub-S corps. We could also ban LLCs which serve no public policy purpose.
We seem to have forgotten that corporations only exist by virtue of a government license and that the charter was to be limited in scope or purpose to a specific business pursuit. Thus, a company, such as Apple, sitting on piles of cash should only be permitted to reinvest that cash in its operations, buy up smaller companies that are in the same business or an adjunct to or advancement of Apple’s core operations (subject to anti-monopoly laws that also seem to have gone by the wayside), or distribute the cash to shareholders. It wouldn’t be permitted to become an unregistered investment operation.
Fixing the tax code will be a monumental task and I fear it will never happen. But why not start with this carried interest loophole that lets those who manage hedge funds pay 15%. At some level capital gains should also be taxed at ordinary income.
That would be fine — but the problem is that when only a loophole is addressed, corporate America finds some why to undermine it. As well as making it such a difficult fight to pass, that it’s the only thing that gets sort of done for many years. Better to go ahead with a more substantive correction (that would also pick up the carried interest problem) because the fight won’t be that much more difficult. Plus, “carried interest” is too obscure and inapplicable for ordinary Americans to care about. Lawmakers do better when a large majority has their backs. (Wasn’t always like that — but that was back in the days when Congress and Administrations were smarter and were expected to do serve the public good. Now far too many are dumb lackeys of the wealthy sponsors.)
BTW this is separate from carried interest and taxation of dividends and capital gains, all of which I feel should be taxed at the same rate as wages. I would allow non reporting of minor amounts such as in the past ($10 as I recall). And I would allow an inflation factor to be used in calculating true long term capital gain, but aside from adjusting basis for inflation, the gain should be taxed at regular rates.
For individuals with earnings far below the POTUS threshold, would support a credit for real long-term capital gains because we do want people to invest for the long-term. But we also want to keep the calculation as simple as possible. Long-term = five or more years. Sale in year five would get a 4% tax credit, each additional year would increase the tax credit by 2%, and years to a maximum of 50%. Annual capital gains tax credits applicable to no more than X% (25%?) of POTUS salary.
An example — $100,000 taxable income. Income tax $25,000. Of that income half of it was from an investment held for 20 years. So, half the tax, $12,500 would receive a 34% credit, $4,250 (an effective tax rate of 16.5% instead of 25% on the capital gains).
I’d agree with this but the basis should be the real basis not an artifical number. Which is not to say that all inflation indices aren’t artificial numbers.
Still, I bought what is now a collectible car for $4000 in 1972. It’s still in the garage. If I sell it for $12,000 now (the going price), do I have a capital gain or a capital loss?
What you are really suggesting is to raise taxes to fight inflation. And that will work far better than interest rates.
Minor quibble: Don’t you mean the global system is premised on the U.S. borrowing money in perpetuity? Or am I missing something?
See the link to the David Graeber article above in my comment.
The US has established trade agreements that means that it continues to run a large balance-of-payment deficit. We import goods and export money. As long as the private sector likes that federal policy because it gooses their overseas business activities; note that they never repatriate the money but ship it to tax havens, that condition will not change. US military spending also exports a lot of money overseas. As does foreign aid. Only those deals in which aid is tied to purchase of US-made exports mitigates this.
That leaves the national economy, which is imaginally split into the public sector and private sector. As long as the private sector demands to make private profits, the government will never have a surplus in a cycle. Of course, this is unsustainable because the private sector keeps piling up paper profits with no real investments in capital equipment and productive facilities. Thus derivatives and CDOs and all the other particle zoo of modern finance. That creates bubbles and crashes the house, creating a depression (without government intervention). The first big one was in 1819 after the War of 1812 boom.
The biggest one was 1929-1933. which was dealt with by New Deal actions of the FDR administration starting with a bank holiday and federal labor programs. Those involved deficit spending because the private sector had already collapsed and the foreign trade sector had also collapsed. A war boom and a mixed economy in the 1950s and 1960s allowed modest reductions in the deficit and paying off some of the war debt. But then we got more wars.
As long as the US is in a permanent state of war, it will be in a permanent state of deficit because the private sector will never pay for the benefits that it is getting from government and from war goosing its order books.
But now, China faces the same flush of cash that the US private sector faces and is finding that some of its investments have been scams. The bubble hasn’t burst; it has been slowly flattened. But China seeks to translate economic and population power into militry power and strategic infrastructure power (through the New Silk Road). The US is going the way of austerity-ridden UK after World War II; W blew our sole-superpower wad. China is taking on the burden of power; do not be surprised if it becomes the country borrowing money in perpetuity after it spends its infrastructure wad. The US could only do infrastructure (ever) under the excuse of national defense. China is moving the same way.
The US borrowing money in perpetuity is a choice that our business leaders have made and that the Congress blindly implements while complaining about deficits. A major culprit is the overseas components of the military budget. And militaries are all about deconstructing infrastructure.
Other factors that lowered the debt were increased productivity due to tech booms in the 1950’s and 1990’s.
Republicans also oppose basic science spending which is the ultimate source of these tech booms.
The first boom was tied directly to Rickover’s insistence on solid state electronics (then in it’s infancy) for the Polaris program. The second boom by DARPA’s creation of the internet.
Here’s a question for you: why does the US have to borrow money at all? There are reasons why the US would like for people to lend money to it, but it has nothing to do with its ability to ‘pay’ for spending.
If entities stop buying US debt, especially if it’s to conduct some kind of political power-play, the United States (or any monetarily sovereign economy for that matter) can laugh right in their crazy faces and tell the neoliberals to go suck eggs while they directly deficit spend. Again, there are reasons why the US doesn’t want to fund all of its spending solely with creating new money, but there’s a reason why the total amount of US debt and the interest rate on the debt don’t correlate.
Exactly. The US never needs to borrow given we have a fiat currency. We borrow bc congress wants us to. That is it, no other economic reason. And then they want to complain like Christie that we have $19 trillion in debt. The damns fool.
And we choose what to pay for interest. Go figure that one.
Now last night Paul and Cruz said they wanted a return to the gold standard. That will change all this as would a balanced budget amendment. The damn fools.
Yes, to use one of their favorite comparisons, going to the gold standard would turn us into Greece, a country without options because of slavery to an arbitrary external currency.
For the most part I agree with your points here. But I want to add that having a fiat currency means we can always pay our debts and there can never be a shortage of money. After all, just print more. Money will always be available to us. That is not to say we can ignore inflation at full capacity. But for the most part there is no problem.(we are no where near full capacity with 10% unemployment showing on the U6)It is likely we should always run at least a small deficit to account for net imports and savings.
Having a fiat currency also means we can control the interest rates we pay on our debt. We have had about 7 years now of effectively zero interest rates and we could keep it there is we wanted to. Our elites and CNBC would like to increase interest. Why not? It is a completely risk free investment. Want something far out? Why issue debt at all?
A constitutional amendment to balance the budget is truly insane. Bill Clinton likes to brag about it and his surplus but as a point of fact, it takes money out of people’s pockets given the current account deficit.
Those who say they want to “reform SS or medicare to save it” and in the same breath want to lower taxes are snake oil salesmen. No reform is needed now or ever and that includes raising the SS tax. If you want to worry then worry about real resources like hospitals, infrastructure and food, yeah food from drought and such. Climate anyone?
Sorry for the rant. I couldn’t watch all that crap last night. These guys are nuts and Matthews bloviates. Ugh!!!
“That [a balanced-budget amendment] would make sense in a country that can’t print its own money or one that doesn’t issue the primary global currency.”
I have to push back on that. The experience of European countries other than Germany over the past decade shows otherwise: balanced budget requirements are bad even for countries that don’t issue the global currency, and especially bad for countries that can’t print their own money.
In Kasich’s defense, this idea is a golden oldie that has dated badly. In the 90s, a substantial number of Democrats like Bill Bradley supported it.